FAQ: Why Do I Have to Pay the Hazard Insurance Premium Up Front?
August 3rd, 2009
Categories:Home Buyer Education
The hazard insurance premium, (also known as homeowner’s insurance) is an interesting topic. While homeowner’s/hazard insurance is commonly looked at as being voluntary on the homeowner’s part, it is typically something the lender will require the homeowner to have. In fact, Arizona’s state banking laws require lenders to collect a year of insurance upfront.
Essentially the lender/bank wants to make sure the home they are loaning you money for is insured against a variety of potentially damaging situations. These situations might range from floods to vandalism. Simply put, if your home gets flooded they want to know insurance is in place to protect your home and their financial investment.
Since the homeowner’s/hazard insurance is usually required by the bank, they will want to have record the home is insured before funding your loan. Hence why they want the premium paid upfront.
When it comes to homeowner’s/hazard insurance i would recommend talking with your insurance agent to determine the best policy. The most common homeowner’s/hazard insurance policy is referred to as a “basic form”. There is also a “broad form” available that covers a larger list of items.
Here’s a list of the most common items you will find in each form. Depending on who you choose to go with for the insurance you might find they offer a different selection of items, or a greater variety of options. If you would like a recommendation for a good insurance agent, i will be more than happy to give you the information for the gentleman I have used for a number of years and have been very happy with.
The basic form provides coverage against
- fire and lighting
- glass breakage
- windstorm and hail
- explosion
- riot and civil commotion
- damage by aircraft
- damage from vehicles
- damage from smoke
- vandalism and malicious mischief
- theft
- loss of property removed from the premises when it is endangered by fire or other perils
The broad form provides coverage against
- falling objects
- damage due to the weight of ice, snow or sleet
- collapse of all or part of the building
- bursting, cracking, burning, or bulging of a steam or hot water heating system or of appliances used to heat water
- accidental discharge, leakage, or overflow of water or steam from within a plumbing, a heating, or an air-conditioning system
- freezing of plumbing, heating and air-conditioning systems and domestic appliances
- injury to electrical appliances, devices, fixtures, and wiring from short circuits or other accidentally generated currents
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